from the hello-compulsory-licenses dept

India has an interesting relationship with pharmaceutical patents. In 1970, India did away with drug patents entirely, believing it would help create a domestic drug industry. And it worked. As we discussed in the past:

2,237 licensed drug manufacturers in 1969-1970 grew to 16,000 by 1991-1993, production of drugs grew at an average rate of 14.4% per year from 1980 to 1993, India became a net exporter of pharmaceutical products, and the market share of foreign multinational corporations (MNCs) dropped from 80-90% to 40% (Fink 2005). In 1995, six of the top ten pharmaceutical firms in India were domestic, and employment in the sector had reached half a million people

Now, remember how people say that without intellectual property, industries protected by those monopolies collapse? Yeah, the opposite happened in India. And yes, many were producing generic versions, but not all of them were. Either way, despite all of this success, the international community, pressured by the big pharmaceutical firms, cracked down on such practices, and demanded that if anyone wanted to join the WTO -- an important organization for large countries to be a part of -- they had to recognize pharmaceutical patents as per the TRIPS agreement. India finally did so in 2005.

However, one key point in TRIPS that developing countries such as India and Brazil have paid close attention to is the fact that they can force a compulsory license on a drug patent holder in the interest of public health.

For the first time since re-instating patents on pharmaceuticals, India has granted just such a compulsory license, covering a kidney and liver cancer drug marketed under the name Nexavar. Indian generic drug company Natco requested a license, noting that Nexavar was in short supply in India and exceptionally expensive. A typical dosage costs around $70,000 per year in India -- something Bayer says is necessary to recoup the drug's R&D costs. However, reports show that it cost less than $300 million to develop this drug (not to mention that the US government subsidized the process) and Bayer has already made billions selling the drug around the world. In a detailed ruling (pdf and embedded below), India's Controller of Patents (nice title) granted Natco the right to make the same drug, requiring it to sell it at a significantly lower price than Bayer sells Nexavar for, and then pay back to Bayer a 6% royalty rate (which is actually at the high end of what the UN recommends). Natco has to make the drug itself and can't name it Nexavar, make it look the same or even state that it's the same as Nexavar -- but it can make its own version of the drug and sell it, and the license lasts the life of the patent. Bayer can and almost certainly will appeal, but this is going to be interesting to watch for a few reasons.

The real question here is how the US will react to this. The Obama administration has been trying to exempt drugs that treat non-communicable diseases (such as cancer medication!) from such compulsory license rights. In the meantime, the big (non-Indian) drug companies have been working hard to lock up the Indian drug market with patents. Not surprisingly, the Obama administration and the big drug companies have a cozy relationship when it comes to dealing with patents in India.

It's likely that you'll start to hear some rumblings from the US government about how this kind of ruling is a "problem" and how India isn't "respecting" international patent law. Expect to see diplomatic pressure placed on India to put limits on its compulsory licensing program, and potentially even noises about how India has to change its patent laws to "update" them and "harmonize" them with the world. Also don't be surprised if stuff like this leads India to jump up the charts on next year's Special 301 reports from the USTR, which list "naughty" countries. It's probably too late to make it into this year's list for this particular move. Is it really any wonder that India is so worried about ACTA? It knows that ACTA is entirely about ratcheting up enforcement, without any exceptions for things like this where something as important as saving lives comes into play.

Re: India's Controller of Patents (nice title)

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Besides, with India's population, they can spare a few thousand lives. Probably a few million lives. We must not allow American CEOs to be deprived of ten of millions of dollars in salaries and benefits.

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Compulsory licensing has been something that I've suspected might be an elegant solution to a lot of modern intellectual property troubles for a while now. Pleasantly surprised to discover that some of our international trade frameworks have considered that exact possibility. Kudos to India for implementing it, and I'm eager to see how it works out.

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Great to see you doing your part to make the world a more horrible place. As a compassonate human being, your children would most likely be compassonate as well. Genetics or environment, the apple still doesn't fall far from the tree. When kind, intelligent, compassionate people decide not to reproduce, who is left to reproduce?

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Just to play devil's advocate here, but wouldn't that same compassion possibly drive someone to not have children for fear of them growing up in a world on the brink of disaster and dooming them to a life of misery and pain (ie. we get a Mad Max / Book of Eli / Terminator style future)?

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Misery and pain futures are drawn by incompasionate people. You wouldn't want compasionate people to suffer in those worlds, but just by being there, compasionate people reduce the probability of a misery and pain future.

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Sadly, the long term effects of this sort of move, especially if it was in a larger market, would be for commercial companies to cut back research in areas that they feel would have this result.

Compulsory licensing would be a solution, but it cannot be "at any price". There has to be a respect for the costs (and risks) involved in developing the medications. Without balance on both sides, we may in fact be shooting the golden goose.

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So despite them already making all their R&D back on the drug and the US paying for large parts of that R&D this company should be able to charge more than most people make in a year for a drug to keep them alive?

Making a profit is fine, telling people they can either die or give you more money than they can ever make is extortion.

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Having made all the R&D back isn't really the issue - because for each drug that makes it to market, there are many more that don't make it. You cannot look at the R&D on a single drug and say "hey, break even!" and then start selling it for pennies. They have to support all the initial testing, pure research, and so on that happens before a single drug comes out.

Sad to say, but without a profit motivation, and without a bottom line benefit, these drugs likely would not have existed at all. So what you are really saying is "you can pay nothing, and die, or pay something and get medication". By saving one life today by giving them free or very cheap drugs today, and hurt the potential for future developments in the field.

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The profit motivation is still there without the granted monopoly, people will still produce and finance others to find new drugs which by the way is a function of the government, most new drugs start not in private labs but public ones funded by public money.

The sad reality is that we don't need the monopolies, we need the freedom to make and trade. Those idiots that believe exclusionary tools are good will eventually be bitten by those same rules.

India and Brazil are becoming biotech giants in their own rights and none of them had protections before only recently, how without granted monopolies they did that if without them it shouldn't be possible?

Answer: Because that line is just BS, companies still have a strong incentive to create or they would fail in the market and they do so more aggressively and the only things that regulates prices are competitors without them prices go up and quality goes down. America is just proof of that, prices are high, so high that is cheaper to travel to another country and have five stars treatment in them than it is to do it in the USA. Americans discovered that going to New Zealand is cheaper and with the same quality of treatment, an Indian eye surgeon is probably more able than any American doctor just because of the sheer number of operations he needs to perform in any given day and that goes for manufacturing, the more people allowed to enter that market the more sources there will be, the lower the prices and the higher the quality of those products since everybody will be building off of others accomplishments and that knowledge spreads, while in a monopoly if that one entity disappears so do that knowledge, is like putting all ones eggs into a single basket and hoping for the best.

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Yes, Indian eye surgeons are probably just as good or better than US surgeons, they're more innovative too. Just recently there was an article about an Indian Hospital doing cataracts operations for $50 an eye, because they used a system not unlike a conveyor belt.

The rising cost for health care is one of the major problems in the Western world, closely connected to the ageing population. It seems we need to get to the root of the problem and exorbitant profits of Pharma companies seems a good start.

Yes, I said exorbitant profits, not profits. Profit=Good, Greed=Not good.

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TO quote from your source:

The high cost of developing drugs shouldn’t be a badge of honor for drug firms; there’s no reason it has to be this expensive. The outlay doesn’t ­justify the high cost of prescription drugs--just because something was expensive to create doesn’t make it good. On the other hand, even high-cost drugs are only a small factor in rising health costs. Medicines are just easy to scapegoat because their prices are easy to track. We can all only hope that new technologies and a better ­un­der­stand­ing of biology will turn things around.

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In most industries once the R&D is paid off the price begins to drift down. Notice that I didn't say plummet. Having paid off their up front costs Bayer still wants to charge $70,000 for a years course of treatment with this drug.

Now, can you see why pharma, big and small, has a bad name?

For North America and Europe this isn't as much of an issue as it is in places like India because at some point Bayer gets to gouge insurance companies/systems instead of individuals. Or Bayer may hope it isn't. Frequently patients will find themselves waiting to get a drug (perhaps this one) while a mess of hoops get jumped through before an insurance carrier or system demand to know if this is the only medication that will aid the customer so they can avoid the high cost.

In most other industries once the up front is paid off the next step is to get the product as widely used as possible to gain as much of a profit as possible to plow into the next one coming down the pipeline. It seems to me that lowering the price, even to $35,000 would get the drug more widely used and allow Bayer to make a greater profit which they then could invest in whatever else they're working on. Doesn't seem to work for pharma. (I'm sure there's a convoluted reason why it doesn't which will be explained to me by a pharma defender so I'll wait to see what it is.)

Then there's the opaque path a lot, if not most, of the research into new medications takes place. Most takes place at publicly funded schools who bear most of the cost or at private universities with injections of public funds as seems to be the case here. So the total risk taken by Bayer in developing this medication is far less than it would have been had it all been done in house. (The same applies when public funds are injected directly into in house research and development by drug companies.)

While the testing costs remain I'm unsure where "pure research" does as drug companies usually sponsor that at universities often far better equipped for that sort of thing and they aren't the largest sponsors by far.

As I said. I'm not talking about selling it for pennies. I am talking about getting a price point in a given market where the drug will actually sell and do what it was intended to do. In this case save a life.

Ultimately if pharma isn't in business to save lives or help repair broken ones then their market, at one point or another, will cease to exist. Over time there won't be anyone left to pay any price.

That extreme answers your extreme that ANY reduction in price will hurt future developments in the field. Maintaining stratospheric prices after your R&D is paid for is morally unconscionable it's also silly in the market for the simple reason that lowering the price means insurance providers and medical systems will be more likely to approve the use of the drug meaning the more MDs will be likely to prescribe it. Meaning you actually sell more of it. Or, in this case, Bayer does.

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Yes, I want the major drug companies to cut back research in these areas. Why?

Our government already funds portions of drug studies. These companies then turn partially taxpayer-financed research into 100% private monopolies on the drugs. So we as a society foot some of the bill and get NOTHING back.

Screw them. I would rather the government support funding for drugs which the public would then have cheap access to, as a right for having participated in financing the research.

Well, it is good that India took care for compulsory licensing like this. I was worried about the other drugs after recent signing of deals with EU that India would not be able to produce the generic versions of AIDS and other important drugs any more. Wonder if anyone could discuss the provisions of that agreement. I am glad that if India can do cancer drugs besides the Aids, Malaria etc, all the third world will win. It is actually good for the west itself. Gates Foundation can acquire the medications from India and supply these to India, Africa etc.

Maybe I should move to India? Since I already have incurable cancer, and after the first-line drugs no longer work, which they eventually will, and the second line drugs cost more for a course of treatment than I make in a year, and the insurance companies will always deny you coverage for it as long as they can, hoping you die before your appeal is successful, then it is starting to look like a better and better idea. At least there, I might have a shot at staying alive a little longer. I like a lot of Indian foods, too, and their beers aren't bad either, so it looks like we're made for each other. Do they have HBO there?

Its the Advertising....

One main point that we are missing here is that the $300 million spent to develop the drug is the smaller part of the budget. R & D costs are only about 1/3 of the total budget. The other 2/3 is spent on advertising the drug to consumers.

If the $300 million is just for development, then you can be sure another $600 million will have been spent on advertising.

Why cannot the entire budget be spent on the R&D of the drug? At least make sure the majority of money is spent on R&D. This would decrease the costs of medications for consumers and increase the knowledge base for the drug companies.

learning by example

The U.S. can -- and should -- learn from India's example in this case. Too often, the patent system gives the appearance of favoring private profit over the public interest. Certainly, innovators have a right to benefit financially from their intellectual property; but in some life-and-death cases it seems to me that basic human rights should trump considerations of revenue maximization.